What to Expect From a Tough Quarter at Barclays in Four Charts

  • Analysts see 20 percent drop in investment banking and trading
  • CEO Staley reports results from his first full quarter at helm

Jes Staley will report results from his first full quarter at the helm of Barclays Plc on Wednesday and his bet on the firm’s investment bank isn’t set for a strong start.

Barclays will report declines of more than 20 percent in investment banking and trading revenue, according to estimates from Sanford C. Bernstein Ltd. analyst Chirantan Barua. That echoes drops that U.S. firms posted earlier this month, as lenders from Morgan Stanley to Goldman Sachs Group Inc. saw trading plummet and deals dry up in what is usually their busiest period.

Staley, who is overseeing the investment bank himself after the departure of Tom King, has rebuffed calls from analysts and investors to slash the unit or spin it off. He’s instead opted to cut the dividend and sell down Barclays’s stake in its Africa business to boost capital. The strategy to stick with the investment bank at its current size has been called “awful” by Edward Firth at Macquarie Group Ltd. and “tough to understand” by KBW Inc. analysts.

“The shares are so cheap now, delivery of anything will surely be received positively,” said Firth, a London-based analyst who has an outperform rating on the stock. “They’re hanging around in investment banking, waiting for a cyclical upswing. Is that right call? It certainly doesn’t fit with investor thinking.”

Barclays has already warned investors twice it will post a drop at the investment bank in the first quarter after a weak performance in March. The lender restated trading revenue lower as it moved some operations to its non-core division. Last year, the investment bank generated 2.1 billion pounds of revenue and 675 million pounds of pretax profit.

“The first quarter is usually the big earnings quarter for the investment banks,” but “expectations for earnings are rock-bottom,” said Bernstein’s Barua.

The first quarter will be the first time Barclays reports results reflecting Staley’s new structure. Last month the bank split into two divisions -- Barclays U.K. and Barclays Corporate and International -- to comply with a British law requiring so-called ringfencing, or separation of banks’ consumer and investment-banking arms, by 2019.

The U.K. bank has about 70 billion of risk-weighted assets; the non-ringfenced business is almost three times as large, with about 195 billion pounds. That division will consist of the investment bank, most of the wealth management unit, and the U.S. and international cards businesses.

Revenue at Barclaycard will increase 12 percent in the quarter and the personal and corporate bank should see only a 2 percent decline, according to Bernstein estimates. Barclays Africa is now listed as a “discontinued operation” in company filings, while 8 billion pounds of risk-weighted assets have been added to the non-core division that houses 54 billion pounds of toxic and otherwise unwanted loans and businesses.

Staley hasn’t totally spared the investment bank as he seeks to boost return on equity to double-digits. The CEO announced 1,200 additional job losses in January as Barclays pulled out of seven countries in Asia, and has imposed a hiring freeze and cut the bonus pool. Risk-weighted assets have been slashed in half to 108 billion pounds since 2014 under a strategy started by previous CEO Antony Jenkins.

Before it's here, it's on the Bloomberg Terminal.